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‘Snowbird bill’ on Beacon Hill would double the Mass. estate tax exemption

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The cheekily nicknamed “snowbird bill” is partly aimed at Florida-bound seniors seeking to avoid the Bay State’s estate tax. Adobe Stock

A bill before the state legislature would double the Massachusetts estate tax exemption, from $1 million to $2 million, as rising home values push more residents toward the current threshold.

Massachusetts is one of just a dozen states, along with the District of Columbia, that levies a tax on people’s estates after they die. Because that tax applies only to fortunes of over $1 million — including all real estate, life insurance, and retirement savings — most residents don’t end up paying it. But with property values skyrocketing over the past two years, a lot more Bay State homeowners now have a net worth approaching the million-dollar threshold, even if they don’t feel all that wealthier than they did two years ago.

Introduced by State Senator Julian Cyr, who represents Cape Cod, Martha’s Vineyard, and Nantucket, the cheekily nicknamed “snowbird bill” is partly aimed at Florida-bound seniors seeking to avoid the Bay State’s estate tax. “We have some evidence that the estate tax drives away retirees,” Cyr said. “The IRS has migration data that shows we lose thousands of older residents — yes, to warm places like California and Florida — but also to New Hampshire and even to New York, which has a higher threshold for the estate tax.”

But that’s not the main reason Cyr wants to update the exemption; his bigger concern is the impact on middle-class homeowners, seasonal businesses, and their families, many of whom are able to make a year-round living on the Cape only due to the footholds their family homes provide. Many longtime Cape and Islands residents are “land rich and cash poor,” Cyr said, with homes they purchased for as little as five figures decades ago now valued at closer to seven.

There’s no denying such homes are significant assets, Cyr said, but a home isn’t a pile of money in an investment account — the value is realized only once it’s sold. Surviving family members hit with an unexpected estate tax bill can generally pay it by selling their longtime family home, but with housing so scarce on the Cape and Islands, there’s no guarantee they’d be able to downsize and continue living there. “If you sell the house, you lose your home, and then you can’t stay in the community that you live in,” Cyr said. “This is a real problem I’m working on: We haven’t built housing for people to downsize into.”

State representative Dylan Fernandes of Falmouth, who’s sponsoring the House version of the bill, said the Massachusetts estate tax is the most aggressive in the country. “As median home prices climb just shy of $1 million in many places on Cape Cod — and are well over that on the islands — middle-class families in the region and other high-cost areas are being hit with a massive tax burden that was originally just intended for the wealthy,” Fernandes said.

The median price of a single family home on Cape Cod has jumped more than 37 percent in less than two years; half of all the houses sold in Barnstable County this past November went for more than $642,000, according to real estate analytics firm The Warren Group. The median sale price on Martha’s Vineyard was $1.175 million; Nantucket’s topped $2.2 million.

Of course, it’s not just homeowners on the Cape and Islands who find themselves living in a newly valuable estate tax target. In 2021, the median sale price of a single-family home topped $700,000 in Greater Boston communities from Roslindale to Reading, Scituate to Swampscott, Natick to Newbury, Waltham to Watertown — to say nothing of the stratospheric home values in places like Lexington, Cambridge, and Newton.

Gregory Pearce, an estate lawyer in Cambridge, said most of his clients are worth over $1 million primarily due to their homes — and the topic of relocating does come up among his high-net-worth clients. “In fact, I had one married couple recently do just that — established their residency at their Florida vacation home primarily for estate tax purposes,” he said. But without additional planning, Pearce added, relocating alone doesn’t dodge the estate tax if someone still owns property in Massachusetts, so the practice isn’t as common as people sometimes think.

“In my experience, establishing residency outside of Massachusetts is more of the exception than the norm,” Pearce said.

The bill is intended to be revenue neutral and instructs the state’s Department of Revenue to make up any lost income by imposing higher tax rates on estates valued at over $2 million; the estate tax was always meant to be a progressive one, Cyr said. “Currently the Commonwealth nets between $400 million and $500 million annually from the estate tax,” he said. “We wouldn’t want to eliminate the estate tax because that would leave a pretty sizable hole in our budget.”

Even after doubling the exemption to $2 million, Massachusetts would still have a lower estate tax threshold than nearby Connecticut, New York, Maine, and Vermont. “We’re clearly such an outlier here,” Cyr said. “I mean, the fact that the states of Maine and Vermont both have thresholds that are over $5 million just really shows that we’re an outlier.”

Jon Gorey blogs about homes at HouseandHammer.com. Send comments to [email protected]. Follow him on Twitter at @jongorey. Subscribe to our free real estate newsletter at pages.email.bostonglobe.com/AddressSignUp. Follow us on FacebookLinkedInInstagram, and Twitter @globehomes.